Biochemical and - China Agriimg.chinaagri.com/Uploads/Zlyz/File/2018/07/04/u5b3c89ec...2018/07/04 · China’s leading supplier of packaged rice and largest rice exporter and importer

Oilseeds processing business--------------------------------------------

Biochemical and biofuel business--------------------------------------------

Rice processing andtrading business--------------------------------------------

Market position:

One of the largest vegetable oil and oilseed meal producers in China

Major products:

Soybean oil, palm oil, rapeseed oil and oilseed meals

Major brands:

Fuzhanggui (福掌柜 ), Sihai (四海 ), Xiyingying (喜盈盈 ) and Guhua ( 谷花 )

Market position:

China’s leading supplier of packaged rice

and largest rice exporter and importer

Major products:

Rice

Major brands:

Fortune ( 福臨門 ), Jinying ( 金盈 ),

Five Lakes ( 五湖 ), Golden Terra ( 金地 ),

Xin ( 薪 ) and Donghai Mingzhu ( 東海明珠 )

Market position:

One of the largest corn processors in

China and a leading fuel ethanol producer

Major products:

Biochemical: Corn starch, sweeteners,

crude corn oil, monosodium glutamate

(MSG) and feed ingredients

Biofuel: Fuel ethanol, consumable alcohol,

anhydrous ethanol, crude corn oil and

distiller’s dried grains with solubles

(DDGS)

------------ Our ccore busineess

Wheat processing business--------------------------------------------

Brewing materials business--------------------------------------------

Market position:

One of the largest wheat processors

in China

Major products:

Flour, noodles and bread

Major brands:

Fortune ( 福臨門 ) and

Xiangxue ( 香雪 )

Market position:

A leading brewing material supplier

in China

Major products:

Malt

Contents

Corporate Information

Financial Highlights

Capacity Distribution

Chairman’s Statement

Managing Director’s Report

Management Discussion and Analysis

Five-Year Financial Summary

Corporate Governance Report

Risk Management

Directors and Senior Management Profile

Report of the Directors

Audited Financial Statements

Independent Auditors’ Report

Consolidated Statement of Profit or Loss

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Statement of Financial Position

Notes to the Financial Statements

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CHINA AGRI-INDUSTRIES HOLDINGS LIMITED1 2014 Annual Report

DirectorsChairman of the Board and Non-executive DirectorYU Xubo

Executive DirectorsYUE Guojun (Managing Director)SHI Bo

Non-executive DirectorsNING GaoningCHI JingtaoMA Wangjun

Independent Non-executive DirectorsLAM Wai Hon, AmbroseVictor YANGPatrick Vincent VIZZONEONG Teck Chye

Audit CommitteeLAM Wai Hon, Ambrose (Chairman)Victor YANGPatrick Vincent VIZZONEONG Teck ChyeCHI JingtaoMA Wangjun

Remuneration CommitteeVictor YANG (Chairman)CHI JingtaoMA WangjunLAM Wai Hon, AmbrosePatrick Vincent VIZZONEONG Teck Chye

Nomination CommitteeYU Xubo (Chairman)CHI JingtaoLAM Wai Hon, AmbroseVictor YANGPatrick Vincent VIZZONEONG Teck Chye

Executive CommitteeYUE Guojun (Chairman)SHI Bo

Qualified AccountantCHAN Ka Lai, Vanessa

Company SecretaryLOOK Pui Fan

AuditorsErnst & YoungCertified Public Accountants

Legal AdvisorHerbert Smith Freehills LLP

Registered Office31st Floor, Top Glory Tower262 Gloucester RoadCauseway Bay, Hong Kong

Share Registrar and Transfer OfficeTricor Progressive LimitedLevel 22, Hopewell Centre183 Queen’s Road EastHong Kong

Principal BankersAgricultural Bank of China LimitedAgricultural Development Bank of

ChinaAustralia and New Zealand Banking

Group LimitedBank of China LimitedBank of China (Hong Kong) LimitedChina Construction Bank (Asia)

Corporation LimitedDeutsche BankIndustrial and Commercial Bank of

China LimitedRabobank International

(Hong Kong Branch)Standard Chartered Bank

(Hong Kong) LimitedThe Bank of Tokyo-Mitsubishi

UFJ, Ltd.

Investor RelationsFAN Wing Yu, WinnieTelephone: +852 2833 0606Facsimile: +852 2833 0319E-mail: [email protected]

Company Websitewww.chinaagri.com

Stock Code606

2

For the year ended 31 December 2014

Unit 2014 2013Increase/

(Decrease)

(Restated)

Revenue: HK$ million 93,238.7 94,543.0 (1%)

– Oilseeds processing HK$ million 53,713.5 57,535.7 (7%)

– Biochemical and biofuel HK$ million 16,540.0 15,514.1 7%

– Rice processing and trading HK$ million 7,746.4 7,744.9 0%

– Wheat processing HK$ million 9,002.1 8,560.2 5%

– Brewing materials HK$ million 2,738.8 2,170.0 26%

– Corporate and others HK$ million 3,497.9 3,018.1 16%

Profit/(Loss) before tax HK$ million (338.2) 2,236.7 (115%)

Operating profit/(loss) (segment results) HK$ million (398.2) 2,212.4 (118%)

Operating profit before depreciation andamortisation HK$ million 1,274.8 3,641.0 (65%)

Operating margin % (0.4) 2.3 N/A

Profit/(Loss) attributable to owners of theCompany HK$ million (775.4) 1,568.5 (149%)

Earnings/(Loss) per share:

– Basic HK cents (14.77) 29.88 (149%)

– Diluted HK cents (14.77) 29.78 (150%)

Dividends per share for the year:

– Interim HK cents – 3.1 N/A

– Proposed final HK cents – 4.1 N/A

Total assets HK$ million 78,561.3 82,769.3 (5%)

Equity attributable to owners of the Company HK$ million 28,075.1 28,982.7 (3%)

Closing price per share at year-end HK$ 3.20 3.87 (17%)

Market capitalisation at year-end HK$ million 16,799.6 20,317.0 (17%)

Net asset value per share at year-end HK$ 5.35 5.52 (3%)

Net gearing ratio at year-end % 67.9 67.1 N/A

3 2014 Annual Report CHINA AGRI-INDUSTRIES HOLDINGS LIMITED

Oilseeds processing

Rice processing and trading

Biochemical

Biofuel

Brewing materials

Wheat processing

Shaanxi

Ningxia

Sichuan

Guizhou

InnerMongolia

Yunnan

Qinghai

Xinjiang

Tibet

Gansu

Guangxi

Chongqing

Yellow Sea

Heilongjiang

Jilin

Liaoning

Shandong

Henan

Hunan

ShanxiHebei

Tianjin

Hainan

Guangdong Taiwan

FujianJiangxi

Shanghai

Zhejiang

Anhui

Jiangsu

Hubei

Hong KongMacau

South China Sea

East China Sea

Beijing Bohai

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2014 Capacity Unit: metric ton ’000

Oilseeds Processing

Crushing Capacity 11,580

Jiangsu 3,600

Shandong 2,280

Guangxi 1,740

Tianjin 1,200

Hubei 840

Guangdong 720

Liaoning 600

Jiangxi 300

Anhui 300

Refining Capacity 4,330

Jiangsu 1,110

Tianjin 720

Shandong 660

Guangdong 440

Guangxi 420

Hubei 360

Jiangxi 180

Anhui 180

Chongqing 180

Liaoning 80

Biochemical and Biofuel

Biochemical (Corn Processing Capacity) 2,450

Jilin 1,850

Heilongjiang 600

Sweetener Production Capacity 1,040

Jilin 490

Shanghai 250

Hubei 100

Hebei 100

Sichuan 100

Monosodium Glutamate (MSG) Production Capacity 100

Heilongjiang 100

Biofuel 1,800

Heilongjiang (Corn Processing Capacity) 1,200

Guangxi (Tapioca Processing Capacity) 600

Fuel Ethanol, Consumable Ethanol and Anhydrous Ethanol Production Capacity 600

Heilongjiang 400

Guangxi 200

2014 Capacity Unit: metric ton ’000

Rice Processing and Trading

Rice Production Capacity 2,445

Heilongjiang 640

Liaoning 425

Jiangsu 255

Jilin 220

Jiangxi 220

Anhui 195

Hubei 190

Hunan 165

Ningxia 75

Sichuan 60

Wheat Processing

Wheat Processing Capacity 3,451

Henan 1,320

Zhejiang 600

Hebei 340

Jiangsu 321

Liaoning 280

Sichuan 240

Fujian 180

Shandong 170

Noodle Production Capacity 195.3

Henan 66

Liaoning 48

Hebei 19.8

Zhejiang 18

Jiangsu 18

Sichuan 18

Shandong 7.5

Bakery Production Capacity 1.98

Beijing 1.98

Brewing Materials

Malt Production Capacity 740

Liaoning 360

Jiangsu 300

Inner Mongolia 80


Dear Shareholders,

In 2014, China’s economy faced greater downward pressure as reforms to the economic system

deepened. Slower macroeconomic growth had an adverse impact on our markets as well as the

end users of our products. Unusually, we did not see the traditional peak season effect in any of

our major products. Across the board, we saw weak markets in oils, rice, wheat, feed grains and

starch. At the same time, commodity price swings on the global market have been dramatic due to

growing complexity in the global economy, which in turn reduced forward visibility and predictability.

The agricultural processing sector experienced problems in both production and operations, with

most companies showing declining performance. The oilseeds processing business of China Agri-

Industries Holdings Limited (“China Agri” or the “Company”) was hit hard. Price volatility was greater

than anticipated and affected oilseed markets during much of the year, resulting in losses for the

segment and the Company as a whole, despite stable and even positive performances by other

business segments.

In terms of its stage of development, the Company is a domestic market leader, with competitive

advantages across its business portfolio. It is now poised to translate these advantages to higher

level of performance. We do not anticipate any impact on our business model or operational structure

as a result of the short-term, cyclical issues we faced in 2014. We are in fact looking at the downturn

as an opportunity to develop internal systems that will aid in our recovery and allow rapid progress in

operations. Management has set out targets and objectives for internal systems development, and

will be monitoring the implementation. The Board of Directors remains confident in sustaining long-

term growth of the Company as it continues strengthening the foundation of the business.

The Company maintains high standards of corporate governance through its Board of Directors. Our

directors are committed and have well defined management responsibilities. Management is held

responsible for timely and transparent disclosure of business information to shareholders. We have

a strict code of business ethics and endeavor to meet our community and social responsibilities,

protect the environment, and provide benefits to the public through corporate philanthropy. We

view both our code of ethics and corporate social responsibility as essential to sound business

management and value creation. In order to support the national grain policy and to protect the

interest of farmers, the Company participates in the national grain purchase and storage program as

well as grain inventory auctions.

The “new norm” of China’s economy in 2015 will set much higher standards for business, as

consumer demand strengthens and industry moves up the value chain. Public policy is putting

pressure on state-owned enterprises (SOEs) to improve profitability and become more dynamic

and market-oriented. China Agri will take advantage of the momentum from SOE reforms to adopt

a consumer-facing management style. It is extending its industrial value chain by introducing a

6

development plan for refined and deep-

processed food products as new growth

drivers. COFCO Corporation, China

Agri’s parent company, has developed an

international presence through acquiring

assets in the upstream space that will

provide many new prospects for future

development, creating opportunities

for China Agri as well. China Agri is

currently in touch with these new assets

for information exchange on markets

and other matters, in order to learn

new management techniques and gain

knowledge in a variety of markets as well

as learn ways to be more responsive to

industry risks.

Finally, I would like to take this opportunity

to extend my heartfelt gratitude to our

shareholders, customers and business

partners for their continued support. I

would also like to thank the members

of our Board, the management and our

hard-working staff for their diligence and

aspiration.

YU XuboChairmanHong Kong, 25 March 2015


In 2014, China Agri’s overall performance fluctuated in a wide range due to the severity of the

business environment for China’s oil and grain processing industries, driving an aggregate loss of

HK$775.4 million.

During the year, the greatest challenges were in the oilseeds processing business, exacerbated

by soft downstream demand. Despite a rebound in profits in the fourth quarter, industry losses in

the first six months and a volatile market in the third quarter translated into a full-year loss for the

Company. Other business segments maintained smooth operations and steady growth. The biofuel

business was profitable, and biochemicals boost earnings with its highly competitive products while

corn processing faced a tough environment. In the rice processing business, the focus was on

reducing costs and creating a better portfolio structure of end products in order to reduce losses,

while building on its dominant position in terms of import channels and the geographical spread

of domestic production. New capacity in our wheat processing business benchmarked against

established factories, working to improve systems and operations in new geographic regions for

the Company, in order to sustain growth in sales volume. The brewing materials business hit new

records in sales volume and profitability by taking advantage of a stable, mature operating system

and market opportunities.

As a major agricultural processing enterprise, China Agri has developed industry-leading operating

and financial metrics, together with an impressive geographic spread in terms of its manufacturing,

processing, and distribution assets. While losses in 2014 are unlikely to affect the Company’s long-

term development direction, management took note of the weak results for the year, and reflected on

the need to improve and to strengthen its foundation in certain areas, particularly on its professional

management capacity to cope with and adapt to the fast-changing market conditions, and

developing a more complete set of systems integration for risk management.

Looking ahead to 2015, the external business environment will remain challenging. Despite an

abundant supply of agricultural commodities in international markets and weaker raw materials

prices, raw grain prices in China will remain at a high level due to policy support while slower

economic growth will depress end demand for agricultural products. Overcapacity will squeeze

margins in the oil and grain processing industries. In addition, the impact of increasing volatility of

the renminbi exchange rates would present new challenges. Given the long-term trends for declining

growth, overcapacity and intense competition in the domestic market, China Agri will work towards

greater professionalisation, business acumen and operational efficiencies, while developing highly

focused strategies to cope with critical industry and business issues.

8

YUE GuojunManaging DirectorHong Kong, 25 March 2015

Over the past three years, China Agri

has made continuous progress with

management benchmarking. In 2015, we

will focus on combining benchmarking with

building a learning organisation and process

reengineering, in order to introduce a more

scientific and systematic approach to

management. Benchmark management tools

will be applied to assessment and incentive

systems in order to energise the business.

China Agri will use its fundamental risk

management and producer competencies

to improve the competitiveness of its

products as well as to extend the depth

and scope of the product chain to meet

customer demand. We will use research and

development to support our capacity as a

technology and solutions provider, as well

as to produce innovations and advances in

our business model and adapt to market

competition.

Management Discussion and Analysis

+Oilseeds Processing Business

+Biochemical and Biofuel Business

+Rice Processing and Trading Business

+Wheat Processing Business

+Brewing Materials Business


Business Review

Oilseeds Processing Business

China Agri is one of the largest vegetable oil and

oilseed meal producers in China. Its products include

soybean oil, palm oil, rapeseed oil and oilseed meals,

which are sold under the brand names “Fuzhanggui”

(福掌柜), “Sihai” (四海), “Xiyingying” (喜盈盈) and “Guhua” (谷花).

During the year under review, international soybean

prices first rose due to tight old-crop stockpiles in

the United States before falling on harvest pressures

from bumper new crops. An excessive supply in the

domestic market along with weak consumption drove

product prices to record historical lows. Oilseed meal

prices were depressed as a result of sluggishness in

the downstream breeding industry. Volatility in the

vegetable oil and oilseed meal markets posed great

challenges to the industry, especially in the first half

of the year.

From an operational perspective, the oilseeds

processing business maintained stable production

and operations in 2014. Sales volume of major

products rose 10.5% year on year to 9,936,000

metric tons. Nevertheless, the business reported

a year-on-year decrease of 6.6% in revenue to

HK$53,713.5 million due to an overall decline in

product prices. Price fluctuations impacted earnings.

Industry-wide losses in the first half of the year

and a further downturn in the third quarter hurt

the Company’s performance. As inventory costs

gradually came down in the fourth quarter, as the

Company worked to optimise its cost structure,

the oilseeds processing business ended the year

with a smaller loss. The Company responded to a

complex business environment by reorganising and

applying value analysis to every link of its supply

chain and implementing stringent cost controls.

These processes helped to strengthen and improve

management.

Low Res

12

MANAGEMENT DISCUSSION AND ANALYSIS

As of 31 December 2014, the Company operated

a total of 17 oilseeds-processing plants in Liaoning,

Tianjin, Shandong, Jiangsu, Guangxi, Hubei, Jiangxi,

Anhui, Chongqing, Guangdong, and Xinjiang. The

plants had a combined annual crushing capacity

of 11,580,000 metric tons and a combined refining

capacity of 4,330,000 metric tons, collectively

representing one of China’s largest crushing and

refining operations.

In 2015, current market forecast indicates oversupply

and slower demand trend for soybeans in the

international market. Raw material prices are likely

to stay low and fluctuate within a narrow range. As

slower economic growth becomes the new norm

in China, there will be supply pressure on product

markets while demand will remain soft. Given the

complexity of the market, the Company will aim at

operational stability. Meanwhile, it will strengthen

market research and risk management, factory-

level management, sales channels, and resource

allocation. It will seek to meet challenges proactively

and strive for stability.



Biochemical Business

The Company’s biochemical business is primarily

engaged in the processing of corn. Its products

include cornstarch, sweeteners (including

maltodextrin, fructose syrup, maltose syrup and

other sweeteners), monosodium glutamate (MSG),

crude corn oil, and feed ingredients.

During the year under review, corn prices trended up

despite an abundant supply on the domestic market.

The main factors supporting high prices were the

government’s stockpiling and auction policies and its

incentive program to subsidise transport of northern

grain to southern consuming markets. However,

demand for downstream products was weak, with

soft prices for cornstarch. Market competition put

pressure on profits in the sweetener segment as

well. In response to these challenges, the Company

monitored the government corn reserves and auction

policies, and adopted flexible procurement strategies

in order to reduce cost pressure, while using its

strengths in geographic distribution to participate in

the temporary corn reserve scheme in order to earn

extra income.

Biochemical and Biofuel Business

In 2014, the Company’s biochemical and biofuel revenues totaled HK$16,540.0 million, an increase of 6.6% year-

on-year. The segment’s gross margin fell slightly to 12.0% from 13.5% in 2013.

Over the course of 2014, the Company leveraged its

technological superiority and high quality products

in order to expand market share, while upgrading

customer services to reinforce strategic partnerships

with key customers. Sales volume of sweeteners rose

by 17.8% year-on-year to 681,000 metric tons. As

a result, segment revenue for biochemical increased

year-on-year despite falling product prices.

As of 31 December 2014, the Company had a total

of eight factories in Jilin, Heilongjiang, Shanghai,

Hubei, Hebei and Sichuan, with an annual corn

processing capacity of 2,450,000 metric tons

and an annual sweetener production capacity of

1,040,000 metric tons. The Company’s MSG facility

in Heilongjiang, which has a production capacity of

100,000 metric tons, increased capacity utilisation

and is on its way to stabilising production volumes.

In 2015, corn supply will remain plentiful on the

domestic market. The government policy will be

the major factor affecting prices. The Company will

focus on monitoring government reserve and auction

14


policies, adopt flexible procurement strategies to

control raw material costs. In addition, the Company

will use benchmark management strategies to

strengthen professional capacity, operational

efficiency and cost management across this business

segment in response to the weakness in the industry.

By leveraging its competitive advantages in technical

know-how and its diversified customer base, the

Company will be able to increase the sales of

sweeteners, MSG and other downstream products,

making use of pricing premiums and an upgraded

product mix to generate profits.

Biofuel Business

The Company is one of China’s major fuel ethanol

producers, using corn and tapioca as raw materials.

The Company’s biofuel products include fuel ethanol,

anhydrous ethanol, consumable alcohol, crude corn

oil and distiller’s dried grains with solubles (DDGS).

During 2014, the market for fuel ethanol reflected

cyclical factors. In the first half, prices were high.

However, during the second half of 2014, a sustained

slide in gasoline prices put pressure on settlement

prices for fuel ethanol, affecting earnings to a certain

extent. Despite these adverse impacts, the Company

was able to reduce costs and expenses on a year-

on-year basis, by making improvements in business

processes that increased production and operational

efficiencies. Profit in the first half helped the Company

to end the year with increased earnings.

As of 31 December 2014, the Company had one

factory in Heilongjiang and one factory in Guangxi.

Combined production capacity of the two factories

was 600,000 metric tons of fuel ethanol, anhydrous

ethanol, and consumable alcohol.

International prices for crude oil have been depressed

due to a combination of oversupply and geopolitical

factors, hurting prices on the domestic market for

both gasoline and fuel ethanol. These business

challenges are likely to continue into 2015. In order

to overcome these industry hurdles, the Company

will work to source low-cost feedstock by making

use of its competitive advantage in procurement

and seek appropriate cost-saving strategies in every

phase of production phase. Moreover, the Company

will remain attentive to gasoline price movements

and make prompt adjustments to production and

sales of fuel ethanol. The Company will seek support

from regulators for fuel ethanol producers during

this period when low gasoline prices are affecting

profitability.



Rice Processing and Trading Business

China Agri is engaged in the processing and trading

of rice. The Company is a leading packaged rice

supplier and the largest rice exporter and importer in

China. Its package rice products are primarily sold

under the brands “Fortune” (福臨門), “Five Lakes” (五湖) and “Jinying” (金盈). The key markets for its international trading business include Japan, South

Korea, Hong Kong, and Macau as well as other

major rice-consuming and producing regions within

Asia.

In 2014, demand for rice in China remained stable.

The floor price imposed by the government provided

periodic support for paddy prices. Access to low-

cost grains and the ability to dominate market

channels were key competitive advantages in the

industry. In the package rice business, the industry

saw higher levels of demand for mid-to-high-end

products. As industry leaders continued to invest

in the package rice market, industry consolidation

combined with increasing brand awareness and

sensitivity on the part of the consuming public.

The Company’s rice business had total revenue

of HK$7,746.4 million, with domestic sales of

1,033,000 metric tons, and export sales of 228,000

metric tons. After a few years of relentless effort,

the rice business has established a national sales

network for its small package rice products. It has

focused on brand development, expansion of the

supply chain, and sales, which has led to a steady

expansion of scale in its small package rice business.

It has also expanded its product mix in support of

premium pricing. Operations costs have come down,

reflecting a nation-wide network of factories close to

grain supplies. Lower procurement costs and higher

capacity utilisation rates are reflected in an increase

in segment gross margin to 9.7%.

As of 31 December 2014, the Company operated

17 rice-processing plants in Heilongjiang, Liaoning,

Jiangsu, Jilin, Jiangxi, Anhui, Ningxia, Sichuan, Hubei

and Hunan, with a combined annual production

capacity of 2,445,000 metric tons, some of which are

16


newly completed and have been put into operation.

The Company has a network of factories covering

the nation’s main paddy rice-producing regions,

which provides direct access to raw materials.

In 2015, the small package rice market will offer

many opportunities. The Company will continue to

expand the market for branded rice. It will increase

the number of sales channels via third-party

distributors, direct sales, and e-commerce, leading

to increased scale and better capacity utilisation. In

order to grow the business further, the Company will

introduce more efficient organisation to its supply

chain networks and management systems. As state

reserve policies will retain an influential role in grain

pricing, the Company will adapt its procurement

strategy to these policies and to domestic grain

markets while maintaining strict control over raw

material costs and taking advantage of import

channels as international pricing and availability

permit.



Wheat Processing Business

China Agri is one of the largest wheat processors in

China. Its products include general purpose flour,

special purpose flour, noodles and bread products,

which are sold under the brand names “Xiangxue”

(香雪) and “Fortune” (福臨門).

In 2014, despite ample harvests, prices were high

for domestic wheat supplies due to price support

policies. On the demand side, there were slower

sales for downstream products as well as a weak

feed grain market, putting downward pressure on

bran prices and reducing overall profit margins for

wheat processors. At the same time, major wheat

processors increased capacity, accelerating industry

consolidation and leading to heightened competition

among players.

During the year, the Company’s wheat processing

business reported revenue of HK$9,002.1 million.

Sales volume of flour increased 2.6% year-on-year to

1,816,000 metric tons, while sales volume of noodles

increased 5.0% year-on-year to 110,000 metric

tons. The Company focused on key customers

nationwide. In its new production plants, it stressed

the strengthening of its sales and marketing capacity

to better serve local markets by establishing a sales

network for its branded wheat products. At the same

time, it launched its small-package product business

in key cities. The business segment’s gross margin

remained low at 5.8%, as a result of both sluggish

demand and intensified competition.

As of 31 December 2014, the Company operated 13

plants in Henan, Zhejiang, Hebei, Jiangsu, Liaoning,

Sichuan, Fujian, Shandong and Beijing, with total

annual processing capacity of 3,451,000 metric tons

of wheat, 195,000 metric tons of noodles and around

2,000 metric tons of bread products.

Looking ahead, the overall market will be affected

by a slower pace of growth in the national economy

as well as high levels of industry restructuring and

consolidation. 2015 will see intensified competition

in the domestic wheat processing industry.

The Company will make use of its traditional

advantages in its key customers business, integrated

management and customer services, in order to

increase sales volumes and improve operational

efficiency. In addition, the roll out of promotion

campaign for its branded products will diversify the

Company’s business model and help to reinforce its

leading market position.

18


Brewing Materials Business

The Company is a leading supplier of brewing

materials in China. It is engaged in the production

and sales of malt. Sales are to the domestic market

and other Asian countries and regions.

China’s beer market entered a mature stage with

slower growth in terms of demand in 2014. Despite

the slower growth rate, demand for imported

brewery materials boomed on lower domestic

production of barley. Increased levels of purchasing

of feed barley from domestic sources was another

factor maintaining strong prices for imported barley,

translating into cost pressures, despite ample global

supply.

During the year under review, the Company used

its distribution, geographic, and scale advantages

in the competition for imported product, relying on

its extensive network of import channels for barley

as well as the location and scale of its coastal

plants to fill its processing pipeline. The Company

also capitalised on the FIFA World Cup football

season to explore demand for high-quality and

differentiated malt products with its large brewery

customers. Sales of malt products increased 38.7%

year-on-year to a record 687,000 metric tons in

2014, delivering revenue of HK$2,738.8 million. The

Company leveraged its supply chain to enhance

operational efficiency and lower production costs.

Segment gross margin reached a record high in the

Company’s history.

As of 31 December 2014, the combined annual

processing capacity of the Company’s three malt-

processing plants in Liaoning, Jiangsu and Inner

Mongolia was 740,000 metric tons. The plants in

Liaoning and Jiangsu are close to coastal ports. Their

location made it possible to respond to the demand

trend for mid-to-high-end products. The plant in

Inner Mongolia produces brewing materials using

domestic sources of barley, satisfying the demand

for diversified products.

In 2015, malt consumption will remain stable while

the brewing materials business will face challenges

caused by high inventory levels among breweries. As

the brewery industry restructures and consolidates,

market structure will undergo certain changes.

The malt market will see a continued migration

towards high-end and differentiated products.

While maintaining its traditional competence in

procurement, the Company will follow the current

trend towards developing downstream businesses

and higher value-added products. It will seek to

leverage its advantage in scale and technology,

improve product quality and introduce price

premiums reflecting market demand and increased

product quality. It will also work on optimising its

customer base. All of these will help to support its

dominant position in the industry.



Financial Review

Overview of Financial Results for the Year Ended 31 December 2014

Revenue

2014 2013HK$ million HK$ million

Business units:

Oilseeds processing 53,713.5 57,535.7

Biochemical and biofuel 16,540.0 15,514.1

Rice processing and trading 7,746.4 7,744.9

Wheat processing 9,002.1 8,560.2

Brewing materials 2,738.8 2,170.0

Corporate and others 3,497.9 3,018.1

93,238.7 94,543.0

Sales volume of major products of the Group grew steadily during the year ended 31 December 2014, while

prices of major products fell. The impact of weak prices was felt in a decline of 1.4% in revenue to HK$93,238.7

million from a year earlier.

Gross Profit and Gross Profit Margin

During the year, the gross profit of the Group dropped by HK$1,374.3 million to HK$4,329.2 million from a year

earlier as restated. Overall gross profit margin was 4.6% (2013: (restated) 6.0%). During the year, the oilseeds

processing industry faced major challenges, which impacted the gross profit margin of the Group’s oilseeds

segment. Gross profit was stable in the biochemical and biofuel business. The rice processing and trading

business increased its gross profit margin by upgrading its product portfolio and increasing operational efficiency.

Gross profit margin declined in the wheat processing business as a result of intense competition within the

industry and sluggish demand for its products. Rising demand for imported malt helped the brewing materials

business to post a record high in both sales volume and gross profit, making it possible to maintain profitability

above the industry average.

Other Income and Gains

During the year, the Group used cash management effectively to offset part of the exchange losses on Renminbi

depreciation against United States dollars, as well as to generate more interest income. Other income and gains

of the Group decreased by HK$469.2 million year-on-year to HK$1,625.0 million, due to the significant exchange

gain earned on Renminbi appreciation in 2013.

20


Selling and Distribution Expenses

Selling and distribution expenses were HK$3,318.2 million (2013: HK$3,170.0 million) for the year ended 31

December 2014, representing 3.6% (2013: 3.4%) of total revenue of the Group. The increase in the selling and

distribution expenses was due to higher logistics costs arising from the increase in sales volume of sweeteners

and malt products during the year.

Administrative Expenses

Administrative expenses consist of employee compensation, depreciation and amortisation, as well as daily

operating costs. During the year, administrative expenses of HK$1,971.3 million was comparable to the 2013

expenses for this line item, due to the Group’s efforts to monitor operating expenses and reduce wastage in daily

operations.

Finance Costs

During the year, finance costs of the Group rose 9.4% from a year earlier to HK$650.5 million due to an increase

in overall average bank borrowings even with a decline in average lending rates. An analysis of finance costs by

category is as follows:

2014 2013 HK$ million HK$ million

Interest on:

Bank loans wholly repayable within five years 564.3 394.4

Bank loans wholly repayable over five years 37.5 32.6

Loans from fellow subsidiaries wholly repayable within five years 17.2 62.5

Loans from the ultimate holding company wholly repayable within five years 12.8 26.3

Loans from an intermediate holding company wholly repayable within five years 1.4 49.2

Convertible bonds 33.6 75.3

Total interest expenses on financial liabilities not at fair value through profit or loss 666.8 640.3

Less: Interest capitalised (16.3) (45.9)

650.5 594.4

Loss Attributable to Owners of the Company

During the year, losses generated by the oilseeds processing business weighed upon other business

segments, which recorded steady growth and stable performance while the oilseeds processing business faced

unprecedented challenges in its operating environment. The Group posted a loss attributable to owners of the

Company of HK$775.4 million (2013: (restated) a profit of HK$1,568.5 million).



Final Dividend

The Board does not recommend the payment of a final dividend for the year ended 31 December 2014 (2013: 4.1

HK cents per share).

Significant Investments Held and Material Acquisitions and Disposals of Subsidiaries

On 11 August 2014, two non-wholly-owned subsidiaries of the Company, namely COFCO Excel Joy (Tianjin)

Co., Ltd. (“COFCO Excel Joy”) and Tianjin COFCO Excel Joy Lingang Storage Co., Ltd. (“Excel Joy Storage”)

entered into the Absorption and Merger Agreement. Pursuant to which, Excel Joy Storage has been merged and

absorbed by COFCO Excel Joy in which the Group’s shareholding has been adjusted. Further details are given

on page 169 of this annual report.

Save as disclosed in this annual report, the Group did not have any other significant investments held nor any

material acquisitions and disposals of subsidiaries during the year.

Working Capital and Financial Policy

The Group closely monitors the liquidity of funding and the availability of financial resources to ensure that

cash inflows generated from operating activities together with undrawn banking facilities are sufficient to meet

the demands required for day-to-day operations, loan repayments, capital expenditure and potential business

expansion opportunities. During the year, the Group’s operations were financed primarily by accumulated surplus

and bank borrowings.

The Group entered into the financial services agreement with COFCO Finance Co., Ltd. through COFCO Agri-

Industries Management Co., Ltd. (a subsidiary of the Company) for the purpose of achieving more efficient

deployment and application of funds within the Group so as to reduce the average borrowing costs and better

facilitate intra-Group settlement services. During the year, the Group enhanced the liquidity of funds, reduced

finance costs and effectively monitored the internal use of funds through this treasury platform.

By closely monitoring its exposures to fluctuation in commodity prices, the Group enters into appropriate amount

of the commodity futures contracts to timely hedge its risks associated with price fluctuations in raw material

purchases or sales of the related products.

Cash and Bank Deposits

Cash and bank deposits (including pledged deposits) of the Group were HK$12,578.5 million as at 31 December

2014 (31 December 2013: HK$13,944.4 million). During the year, the Group recorded net cash inflow from

operating activities of approximately HK$1,778.8 million (2013: (restated) HK$4,473.3 million). These funds were

mainly denominated in Hong Kong dollars, Renminbi and United States dollars.

22


Bank Loans and Other Borrowings

Total interest-bearing bank loans and other borrowings (including the liability component of convertible bonds)

amounted to HK$31,635.8 million (31 December 2013: HK$33,390.7 million) as at 31 December 2014. The

borrowings were mainly used for the daily operation and business expansion of the Group. These loans are

repayable within the following periods:

31 December 31 December2014 2013

HK$ million HK$ million

Within one year or on demand 30,588.4 30,233.4

In the second year 513.3 2,352.7

In the third to fifth years, inclusive 182.3 461.9

Beyond five years 351.8 342.7

31,635.8 33,390.7

Interest-bearing bank loans carried annual interest rates ranging between 0.95% and 6.55% (31 December 2013:

between 0.83% and 6.55%). Other borrowings (including the liability component of convertible bonds) carried

annual interest rates ranging between 1.16% and 5.60% (31 December 2013: between 1.16% and 3.40%). These

interest-bearing bank loans and other borrowings were denominated in Hong Kong dollars, Renminbi and United

States dollars.

As at 31 December 2014, the Group has pledged assets, including property, plant and equipment and land use

rights, with an aggregate carrying value of HK$593.1 million (31 December 2013: HK$371.9 million) to secure

bank loans and banking facilities of the Group.

The Group had an unutilised committed banking facility of HK$620.2 million as at 31 December 2014 (31

December 2013: Nil). The Group will continue to obtain financing on an unsecured basis whenever possible and

supplement such borrowings with secured financing.

Financial Ratios

The Group’s financial ratios at 31 December 2014 and 31 December 2013 are set out below:

31 December 31 December2014 2013

Net gearing ratio (the ratio of net debts to shareholders’ equity) 67.9% 67.1%

Liquidity ratio (the ratio of current assets to current liabilities) 1.05 1.10

Quick ratio (the ratio of current assets less inventories to current liabilities) 0.62 0.70

Net debt represents the Group’s total interest-bearing bank loans and other borrowings (including the liability

component of convertible bonds) less cash and cash equivalents and pledged deposits. At 31 December 2014,

net debt of the Group was HK$19,057.3 million (31 December 2013: HK$19,446.3 million).



Capital Expenditures

The total capital expenditures of the Group for the year ended 31 December 2014 are tabulated below:

2014 2013HK$ million HK$ million

Business units:

Oilseeds processing 1,238.2 862.0

Biochemical and biofuel 345.3 1,025.9

Rice processing and trading 239.8 433.0

Wheat processing 67.4 147.6

Brewing materials 53.0 16.2

Corporate and others 144.1 334.4

2,087.8 2,819.1

Capital Commitments

Please refer to note 36 of the Notes to financial statements of this annual report for the relevant details of capital

commitments.

Human ResourcesThe Group employed 29,643 (31 December 2013: 30,146) staff as at 31 December 2014. The Group’s

employees are remunerated based on job nature, individual performance and market trends with built-in merit

components. Total remuneration (excluding directors’ and chief executive’s remuneration) for the year ended 31

December 2014 was approximately HK$2,210.1 million (2013: HK$2,110.4 million). Employees in Hong Kong

receive retirement benefits, mostly in form of a Mandatory Provident Fund entitlement, and a similar benefit

scheme is offered to employees in Mainland China. Out of the total remuneration, pension scheme contribution

amounted to HK$230.0 million (2013: HK$205.2 million) for the year.

The Group adopted a share option scheme on 12 January 2007 to attract, retain and motivate senior

management personnel and key employees, and provide eligible participants with an opportunity to acquire equity

interests in the Company that would encourage them to work towards enhancing the value of the Company and

its shares.

Besides, the Group encourages employee participation in continuing training programmes, seminars and e-learning

courses, through which their career, knowledge and technical skills can be enhanced with the development of

individual potentials.

24

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the last

five financial years, as extracted from the published audited consolidated financial statements and restated as

appropriate, is set out below:

2014 2013 2012 2011 2010HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

RESULTS (Restated) (Restated) (Restated) (Restated)

REVENUE 93,238,734 94,543,022 91,319,186 82,349,859 53,491,700

PROFIT FROM OPERATING ACTIVITIES 297,424 2,647,069 2,413,625 4,620,530 1,463,290

Finance costs (650,467) (594,429) (883,683) (888,658) (376,878)

Share of profits and losses of associates 14,796 184,102 23,725 169,848 352,955

PROFIT/(LOSS) BEFORE TAX (338,247) 2,236,742 1,553,667 3,901,720 1,439,367

Income tax expense (310,335) (417,761) (189,106) (568,791) (185,994)

PROFIT/(LOSS) FOR THE YEAR (648,582) 1,818,981 1,364,561 3,332,929 1,253,373

Attributable to:

Owners of the Company (775,403) 1,568,453 1,180,389 2,396,092 1,671,666

Non-controlling interests 126,821 250,528 184,172 936,837 (418,293)

(648,582) 1,818,981 1,364,561 3,332,929 1,253,373

ASSETS, LIABILITIES ANDNON-CONTROLLINGINTERESTS

TOTAL ASSETS 78,561,321 82,769,284 74,547,986 70,036,207 56,685,965

TOTAL LIABILITIES (46,139,547) (50,036,828) (44,111,111) (44,926,182) (35,538,412)

NON-CONTROLLING INTERESTS (4,346,644) (3,749,753) (3,429,030) (3,146,272) (2,089,268)

28,075,130 28,982,703 27,007,845 21,963,753 19,058,285


IntroductionThe Company recognises the importance of corporate transparency and accountability. The directors of the

Company (the “Directors”) are committed in achieving a high standard of corporate governance practices and

procedures and striving for a transparent and accountable management framework on enhancing the interests of

shareholders. The corporate principles of the Company emphasise on upholding sound ethics and integrity in all

aspects of its businesses, and on ensuring that affairs are conducted in accordance with the applicable laws and

regulations.

During the year ended 31 December 2014, the Company has complied with all the code provisions and, where

appropriate, the applicable recommended best practices set out in the Corporate Governance Code (the “Code“)

contained in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong

Limited (the “Listing Rules”).

Corporate Governance Event Calendar 2014

Jan Directors’ briefing: Emergency response mechanism for food safety incidents.

Apr The Company was awarded the “Best Investor Relations Company” at 4th Asian Excellence

Recognition Awards 2014 by Corporate Governance Asia magazine.

Mr. Shi Bo, Executive Director of the Company, was honoured with an “Asia’s Best CFO” award at

4th Asian Excellence Recognition Awards 2014 by Corporate Governance Asia magazine.

Directors’ briefing: Risk management practices of our business division.

July The Company ranked No. 74 on the Fortune China 500 list in 2014.

Sep Thorough review and revision on the Corporate Governance Manual of the Board of Directors of the

Company.

Directors’ briefing: Exploring the range of existing diversity of the Board through a benchmarking

exercise.

Oct The Company was awarded “The Greater China Awards for Corporates (Environment – Food)” at

Asia Corporate Excellence Awards 2014 by The Asset magazine.

Securities Transactions by Directors and Relevant EmployeesThe Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model

Code”) contained in Appendix 10 to the Listing Rules as the principal standards of securities transactions for

the Directors. Upon specific enquiries on all the Directors, each of them confirmed that they have complied with

the required standards set out in the Model Code during the year ended 31 December 2014 in relation to their

securities dealings, if any.

26

CORPORATE GOVERNANCE REPORT

The Company has also adopted a code for securities transactions by relevant employees based on the Model

Code concerning dealings by the relevant employees in the securities of the Company (the “Employees Model

Code”). Relevant employees who are likely to be in possession of inside information related to the Group and its

activities must comply with guidelines set out in the Employees Model Code as exacting as those in the Model

Code. During the year, the Company has not received any non-compliance report from any of such employees.

Corporate Governance Structure

Shareholders Audit Committee

Nomination Committee

Remuneration Committee

Executive Committee

Board of Directors

Managing Director

Oilseeds Processing

Division

Biochemicaland Biofuel

Division

Rice Processingand Trading

Division

BrewingMaterialsDivision

WheatProcessing

Division

The BoardThe Board is responsible for the leadership and control of the Company and overseeing the Group’s business,

strategic decisions and performances. It is also responsible for performing corporate governance duties set out

in its own Code of Practice for the Board with terms of reference no less than those required under D.3.1 of the

Code. The management is delegated with the authority and responsibility by the Board for the management of the

Group. In addition, the Board has established various Board committees and delegated various responsibilities

to the Board committees including the audit committee (the “Audit Committee”), the remuneration committee

(the “Remuneration Committee”), the nomination committee (the “Nomination Committee”) (together, the “Board

Committees”) and the executive committee (the “Executive Committee”). All the Board Committees perform their

distinct roles in accordance with their respective terms of reference. Further details of these committees are set

out hereunder.



Other than resolutions passed by means of resolutions in writing of all Directors, the Board held nine meetings

(including four independent non-executive Directors’ meetings, four regular Board meetings and one other

meeting) during the year to, among other things, consider and approve the interim and annual results of the

Group, discuss business strategy and consider financial budget for the year. The information on the number of

the Board meetings attended by each Director during the year is set out in the following table:

Board

Name of DirectorRegular

meetings

Meetings of independent

non-executive Directors

Other meeting

Chairman and Non-executive DirectorYU Xubo^ 4/4 N/A 1/1

Executive DirectorsYUE Guojun 4/4 N/A 1/1SHI Bo 4/4 N/A 1/1

Non-executive DirectorsNING Gaoning 1/4 N/A 0/1CHI Jingtao* N/A N/A N/AMA Wangjun 4/4 N/A 1/1WANG Zhiying# 4/4 N/A 1/1

Independent Non-executive DirectorsLAM Wai Hon, Ambrose 4/4 4/4 1/1Victor YANG 4/4 4/4 1/1Patrick Vincent VIZZONE 4/4 4/4 1/1

^ re-designated as a non-executive Director on 10 November 2014* appointed on 10 November 2014# resigned on 10 November 2014

The above table shows the positions held during the year. The latest composition of the Board is set out on page 1 of this annual report.

The Company adopts the practice of holding regular Board meetings at least four times a year. Notice of each

meeting is sent to Directors at least fourteen days prior to a regular Board meeting, and Directors may request

inclusion of matters in the agenda for Board meetings. For ad hoc Board meetings, reasonable notices are given.

It is the practice of the Company that minutes of meetings of the Board and Board Committees be recorded in

sufficient detail of the matters considered by the Board and Board Committees, decisions reached, including any

concerns raised by the Directors or dissenting views expressed. Draft and final versions of minutes of the Board

and/or Board Committees (as the case may be) are sent to the Directors, on average within 3 weeks after the

date of the respective meeting, for their comments and records respectively. The decisions of the Board can be

made via written resolutions authorised by all Directors.

All Board members have access to the advice and services of the company secretary. Minute books (including

minutes of meetings of all Board Committees) are kept by the company secretary and are open for inspection

during office hours on reasonable notice by any Director.

28


If necessary, Directors also have access to external professional advice at the Company’s expense.

The Board, having reviewed the work implemented and executed during the year and collected opinions of the

senior management during the course of review, considers that it has effectively discharged its responsibilities

and maintained the interests of the shareholders and the Company.

During the year, the Board convened two general meetings. The Directors (Messrs. Yu Xubo, Yue Guojun, Shi

Bo, Wang Zhiying, Lam Wai Hon, Ambrose and Patrick Vincent Vizzone) together with the management and

independent auditors’ representatives attended the annual general meeting of the Company held on 5 June 2014.

The Directors (Messrs. Yue Guojun, Shi Bo, Lam Wai Hon, Ambrose, Victor Yang and Patrick Vincent Vizzone)

together with the management and independent financial adviser’s representatives attended the extraordinary

general meeting held on 12 December 2014.

Chairman and Managing DirectorThe chairman of the Board is Mr. Yu Xubo and the chief executive officer (or managing directors, in the case of

the Company) is Mr. Yue Guojun. The chairman’s and the managing director’s roles are clearly defined to ensure

their respective independence.

The chairman takes lead in formulating the overall strategies and policies of the Group, and ensures effective

performance by the Board of its functions, including compliance with good corporate governance practices, and

encourages and facilitates active contribution of Directors in Board activities and constructive relations between

executive and non-executive Directors. The chairman also ensures that a system of effective communication with

shareholders of the Company and receipt by the Directors of adequate and complete information is in place.

The managing director, as the chairman of the Executive Committee, supported by other Board members and

the senior management, is responsible for the daily business operations and management of the Group. He is

accountable to the Board for the implementation of the Group’s overall strategies as well as co-ordination of

overall business operations.

Board CompositionSince February 2015, the number of Directors has been increased to ten, of which two are executive Directors,

four are non-executive Directors, and four are independent non-executive Directors. Each Director brings

complementary skills, knowledge, experience and perspectives to the governance of the Company.

The Board members have no financial, business, family or other material or relevant relationships with each other.

The composition of the Board has satisfied the requirement under Rule 3.10A of the Listing Rules for the Board

to have at least one-third of its members comprising independent non-executive Directors.

The Company has received annual written confirmations from each of the independent non-executive Directors

confirming their independence in accordance with Rule 3.13 of the Listing Rules. The Board has assessed

their independence and concluded that all the independent non-executive Directors are independent within the

definition of the Listing Rules.



Appointment, Re-election and RemovalCurrently, each of the Directors has a specific term of appointment for three years.

Pursuant to Article 106 of the articles of association of the Company (the “Articles of Association”), at every annual general meeting, one-third of the Directors or, if their number is not a multiple of three, then the number nearest to and at least one-third shall retire from office by rotation at least once every three years. Further, pursuant to Article 111 of the Articles of Association, the newly appointed Director shall retire at the next following general meeting. A retiring Director shall be eligible for re-election. The Company considers that sufficient measures have been taken to ensure that the Company’s practices in appointment of Directors are no less stringent than those set out in the Code.

Mr. Chi Jingtao, who was appointed in November 2014, was re-elected by shareholders at the extraordinary general meeting of the Company held on 12 December 2014. Therefore, pursuant to the above-mentioned Articles 106 and 111 of the Articles of Association, Messrs. Ning Gaoning, Ma Wangjun, Lam Wai Hon, Ambrose, Victor Yang and Ong Teck Chye will retire at the forthcoming 2015 annual general meeting of the Company and, being eligible, each of them have offered himself for re-election.

To enable shareholders of the Company to make an informed decision on the re-election of Directors, the biographies of the retiring Directors are set out in this annual report under the section “Directors and Senior Management Profile”, which demonstrates a diversity of skills, expertise, experience and qualifications among the Directors.

Responsibilities of Directors and TrainingThe Company ensures that every newly appointed Director has a proper understanding of the operations and businesses of the Group and that he is fully aware of his responsibilities under statute and common law, the Listing Rules, applicable legal requirements and other regulatory requirements and the business and governance policies of the Company. The Company sponsors Directors to attend professional development seminars where necessary. In addition, the Company’s legal adviser would provide training (including any update) on the Listing Rules and regulatory requirements (if required) to the Directors. A summary of training received by the Directors during the year according to the records provided by the Directors is set out below.

Name of DirectorAttending briefings,

seminars or conferences

Reading materials relevant to the director’s duties

and responsibilities

Chairman and Non-executive DirectorYU Xubo^ ✓ ✓

Executive DirectorsYUE Guojun ✓ ✓SHI Bo ✓ ✓

Non-executive DirectorsNING Gaoning ✓ ✓CHI Jingtao* ✓ ✓MA Wangjun ✓ ✓WANG Zhiying# ✓ ✓

Independent Non-executive DirectorsLAM Wai Hon, Ambrose ✓ ✓Victor YANG ✓ ✓Patrick Vincent VIZZONE ✓ ✓

^ re-designated as a non-executive Director on 10 November 2014* appointed on 10 November 2014# resigned on 10 November 2014

The above table shows the positions held during the year. The latest composition of the Board is set out on page 1 of this annual report.

30


The independent non-executive Directors take an active role in Board meetings, contribute to the development of

strategies, internal control and policies and make independent judgment on issues relating to the Group. They will

take lead where potential conflicts of interest arise. The independent non-executive Directors also represented

the majority in all three of the Nomination Committee, the Remuneration Committee and the Audit Committee to

ensure sufficient independence in the Board’s decision making process.

Board Committees

Nomination Committee

The Nomination Committee was established on 16 February 2007 with specific written terms of reference in

accordance with the requirements of the Code. It is chaired by the chairman of the Board and comprises a

majority of independent non-executive Directors. The terms of reference of the Nomination Committee are

available in writing upon request to the company secretary and on the Company’s website. The Nomination

Committee currently comprises Mr. Yu Xubo (chairman of the Board and non-executive Director) as the chairman

of the Nomination Committee, Mr. Chi Jingtao (non-executive Director), Mr. Lam Wai Hon, Ambrose, Mr. Victor

Yang, Mr. Patrick Vincent Vizzone and Mr. Ong Teck Chye (independent non-executive Directors).

The Nomination Committee is primarily responsible for the procedures of nominating and appointing appropriate

person to be a director, either to fill a casual vacancy or as an addition to the Board.

During the year, the Nomination Committee held two meetings to review the composition of the Board and the

Board Committees, to consider matters regarding the rotation of retirement of Directors at the annual general

meeting, and to consider developing diversity on the Board. Details of attendance of each Nomination Committee

member during the year are as follows:

Name of Nomination Committee Member

No. of Nomination Committee

meetings held during

the year

No. of Nomination Committee

meetings attended

Attendance rate

YU Xubo (Chairman) 2 2 100%CHI Jingtao* N/A N/A N/AWANG Zhiying# 2 1 50%LAM Wai Hon, Ambrose 2 2 100%Victor YANG 2 2 100%Patrick Vincent VIZZONE 2 2 100%

* appointed on 10 November 2014# resigned on 10 November 2014

The latest composition of the Nomination Committee is set out on page 1 of this annual report.



In carrying out its responsibilities, the Nomination Committee is guided by its specific terms of reference and the

established nomination procedures and criteria, including the policy concerning diversity adopted on 28 August

2013 and the procedures for proposing a person for election as a director adopted on 28 March 2012 (both

documents are available on the Company’s website). The Company aims to build and maintain diversity on the

Board. In identifying and nominating suitable candidates for appointment to the Board, the Company will consider

candidates on merit, having due regard to the benefits of all aspects of diversity including, but not limited to,

mix of skills, experience, industry background, gender and thinking styles. In reviewing the Board composition,

the Company will consider the appropriate range and balance of expertise, experience, skills and diversity

required for the Board to fulfill its duties. In March 2014, the Nomination Committee made a recommendation

to the Board regarding measurable objectives for achieving diversity on the Board in accordance with the board

diversity policy. The recommendation was adopted by the Board. Accordingly, the company secretary conducted

a benchmarking exercise for the purposes of exploring the range of existing diversity and promoting discussion

among Directors on various aspects of diversity. The Company thereafter engaged an executive search

consultant to identify potential director talent to meet the needs of the Company. The Nomination Committee also

reviewed the structure of the Board according to the board diversity policy. The Company will continue implement

a number of programs to support our commitment to improve diversity. The focus for the year is on ensuring that

diversity is integral to the nomination/appointment process and a deeper understanding of the range of existing

diversity.

The executive Directors were appointed based on their qualifications and experience in relation to the Group’s

businesses. The non-executive Directors were appointed based on their qualifications and experience within

COFCO Corporation and its subsidiaries. The independent non-executive Directors were appointed based on

their professional qualifications and experience in their respective areas.

The circular of the Company dated 24 April 2015 contains detailed information on re-election of Directors

including biographies of those Directors standing for re-election to enable shareholders to make informed

decisions.

Remuneration Committee

The Remuneration Committee was established on 16 February 2007 with specific written terms of reference in

accordance with the requirements of the Code. It comprises a majority of independent non-executive Directors

and is chaired by an independent non-executive Director. The terms of reference of the Remuneration Committee

are available in writing upon request to the company secretary and on the Company’s website. The Remuneration

Committee currently comprises Mr. Victor Yang (independent non-executive Director) as the chairman of the

Remuneration Committee, Mr. Ma Wangjun and Mr. Chi Jingtao (non-executive Directors), Mr. Lam Wai Hon,

Ambrose, Mr. Patrick Vincent Vizzone and Mr. Ong Teck Chye (independent non-executive Directors).

The primary role of the Remuneration Committee is to make recommendations to the Board on the Company’s

policy and structure for remuneration of Directors and senior management.

The Remuneration Committee is delegated with authority and responsibility to determine the remuneration

packages of individual executive Directors and senior management. It may consult with the chairman and

Managing Director of the Company regarding proposals for the remuneration of other executive Directors. The

remuneration of the non-executive Directors is determined by the Remuneration Committee or recommended to

the Board for review. Where necessary, the Remuneration Committee may seek professional advice of an external

expert at the Company’s expenses.

32


The existing remuneration policy of the executive Directors is determined by the Remuneration Committee

having considered the qualifications and experience of each of the executive Directors and with reference to the

remuneration policy of other listed companies of similar business and size. The remuneration policy of the non-

executive Directors and the independent non-executive Directors is determined by their participation in the Board

and the Board Committees.

During the year, the Remuneration Committee held three meetings to review the Company’s performance

assessment system and the remuneration packages of several executive Directors and senior management,

and to make recommendation on the emolument of non-executive Directors. Details of attendance of each

Remuneration Committee member during the year are as follows:

Name of Remuneration Committee Member

No. of Remuneration

Committee meetings

held during the year

No. of Remuneration

Committee meetings attended

Attendance rate

Victor YANG (Chairman) 3 3 100%CHI Jingtao* N/A N/A N/AMA Wangjun 3 2 67%WANG Zhiying# 3 2 67%LAM Wai Hon, Ambrose 3 3 100%Patrick Vincent VIZZONE 3 3 100%

* appointed on 10 November 2014# resigned on 10 November 2014

The latest composition of the Remuneration Committee is set out on page 1 of this annual report.

For the year ended 31 December 2014, the remuneration of senior management (excluding Directors) falls into

two bands, three individuals in the range of HK$1,000,001–HK$2,000,000 and two individuals in HK$2,000,001–

HK$3,000,000. Such amount includes equity-settled share option expenses and pension scheme contributions.

Details of the remuneration of the Directors for the year ended 31 December 2014 are set out in note 8 to the

financial statements.

Audit Committee

The Audit Committee was established on 16 February 2007 with specific written terms of reference which clearly

deal with its authority and duties. The terms of reference of the Audit Committee are available in writing upon

request to the company secretary and on the Company’s website. The Audit Committee currently comprises Mr.

Lam Wai Hon, Ambrose (independent non-executive Director) as the chairman of the Audit Committee, Mr. Chi

Jingtao and Mr. Ma Wangjun (non-executive Directors), Mr. Victor Yang, Mr. Patrick Vincent Vizzone and Mr. Ong

Teck Chye (independent non-executive Directors). In compliance with Rule 3.21 of the Listing Rules, the chairman

of the Audit Committee has possessed the appropriate professional and accounting qualifications.



During the year, the Audit Committee held three meetings with the external auditors and/or the senior

management of the Company to review and discuss, among other things, the financial reporting and audit

planning, internal control and the financial results of the Group. Details of attendance of each Audit Committee

member during the year are as follows:

Name of Audit Committee Member

No. of Audit Committee

meetings held during

the year

No. of Audit Committee

meetings attended

Attendance rate

LAM Wai Hon, Ambrose (Chairman) 3 3 100%Victor YANG 3 3 100%Patrick Vincent VIZZONE 3 3 100%CHI Jingtao* 1^ 1 100%MA Wangjun 3 3 100%WANG Zhiying# 2^ 2 100%

^ by reference to the number of meetings held during his tenure* appointed on 10 November 2014# resigned on 10 November 2014

Under its terms of reference, the Audit Committee shall assist the Board in fulfilling its corporate governance

and oversight responsibilities in relation to financial reporting, internal control, risk management and external

audit functions. In the meantime, it is the management’s duty to ensure the Company maintains an adequate

amount of qualified and experienced staff (the information on the number of Certified/Chartered Accountants of

the Company are listed below) for its accounting and financial reporting function. The Audit Committee is further

authorised by the Board to investigate any activity within its terms of reference, and may make recommendations

to the Board to take appropriate actions emanating from such investigations. The Audit Committee has

unrestricted access to personnel, records, external auditors and senior management, as may be appropriate in

discharging its functions.

Certified/Chartered Accountants in the Company

Name of Professional Institution No. of staff

The Chinese Institute of Certified Public Accountants 23Association of Chartered Certified Accountants 2*Hong Kong Institute of Certified Public Accountants 2American Institute of Certified Public Accountants 1**CPA Australia 1Certified General Accountants Association of Canada 1***

* One of these two individuals is also a member of the Hong Kong Institute of Certified Public Accountants.** This individual is also a member of the Hong Kong Institute of Certified Public Accountants.*** This individual is also a member of the Chinese Institute of Certified Public Accountants.

34


Executive Committee

The Executive Committee was established on 27 February 2009 with specific written terms of reference.

Previously, the Executive Committee had three members. After the re-designation of Mr. Yu Xubo as non-

executive Director on 10 November 2014, the Executive Committee comprises two members, namely Mr. Yue

Guojun, the Managing Director, as the chairman of the Executive Committee and Mr. Shi Bo.

Under its terms of reference, the primary responsibility of the Executive Committee is to deal with and supervise

the day-to-day business operations, management and administration of the Company.

Auditors’ RemunerationDuring the year under review, the remunerations paid or payable to Ernst & Young in respect of its audit services

and non-audit services are HK$5.1 million and HK$1.2 million, respectively. The non-audit services mainly

included tax consultancy and business advisory services.

Accountability and AuditThe Directors acknowledge their responsibilities for preparing all information and representations contained in

the financial statements of the Company for the year under review. The Directors consider that the financial

statements have been prepared in conformity with the generally accepted accounting principles in Hong Kong,

and reflect amounts that are based on the best estimates and reasonable, informed and prudent judgment

of the Board and the management. After appropriate enquires, the Directors were not aware of any material

uncertainties relating to events or conditions which may cast significant doubt upon the Company’s ability to

continue as a going concern. Accordingly, the Directors have prepared the financial statements of the Company

on a going concern basis.

The Company’s operating results for the year ended 31 December 2014 were reviewed by the management

during the annual management meeting. Management personnel of all business units and functional departments

of the Company had attended the meeting and the Managing Director presented the Company’s overall and

divisional operating results during the meeting. Variations from the budget and from the previous year’s results

were reviewed and analysed. In this review process, the management identified the effects of the key risk factors

that affected the Company’s businesses during the year and consolidated them with their expectations of the

business performance they accumulated during their daily management of the businesses to form a basis for

comparison and verification of the details of the reported operating results for the year.

Based on the results of the above management review and the business risks identification, an overall business

strategy of the Company for the coming year was also developed during this annual management meeting. To

ensure the achievement of the goals and objectives set for the coming year, this overall business strategy also

includes plan for continuing risks assessment and the development of the necessary internal control procedures.

The Company has announced its annual results for the financial year ended 31 December 2014 on 25 March

2015. An independent Auditors’ Report is included in this annual report on pages 64 and 65.



Internal ControlThe Board acknowledges that a properly designed internal control system is one of the key elements to monitor

and safeguard the resources of the Group; to produce reliable financial reports for the shareholders of the

Company, and to enhance better corporate governance and compliance in return reduces the possibility of

significant errors and irregularities by timely detection.

The COSO (the Committee of Sponsoring Organisations of the Treadway Commission) framework is adopted by

the Company in developing its internal control system. The major elements of the governance framework include

a stable control environment that supports sustainable growth, a comprehensive risk management system, a

system of effective control activities, an efficient information and communications system, and a management

monitoring process. The Board empowered the management with the responsibilities and the necessary

authorities to develop and implement an effective system of internal controls.

Business objectives set by the Board were fully discussed among the management team during the annual

management meeting. Risks associated with achieving or not achieving these objectives were identified and

assessed during these management discussions. Based on the results of these discussions, the management

developed detailed business strategies for the year. These strategies include the plan for the development and

the implementation of the necessary control activities and management monitoring process. Periodic review

on the effectiveness of these business strategies are performed by the management to ensure the necessary

adjustments be made to accommodate the changes in internal and external environment. The Company’s

risk management departments which report directly to the Managing Director are responsible for overseeing

the Company’s overall risk management practice and the related policies setting process (also refer to the

“Risk Management” section of this annual report for details regarding the development of the Company’s Risk

Management System).

Internal AuditThe Company’s Audit and Supervision Department is led by the General Manager of Audit and Supervision

Department and has recruited professionals to enrich the team. The General Manager of Audit and Supervision

Department reports directly to the Audit Committee and the Managing Director and attends all Audit Committee

and Board of Directors’ meetings.

The Audit and Supervision Department’s primary responsibilities include:

• Assist the Audit Committee in its review of the Company’s overall system of internal controls;

• Perform reviews on the design and the proper implementation of policies, procedures and controls of all

major business units and functional departments;

• Perform reviews on the compliance status on rules and regulations that are relevant to the Company’s

businesses;

• Perform efficiency and compliance reviews on major investment and construction projects; and

• Perform special reviews on areas of concern identified by the Audit Committee or the management.

36


An annual internal audit plan is prepared by Audit and Supervision Department based on a risk-based auditing

approach. The approach focuses on the internal controls of material transactions and operations of major

business units and functional departments. The annual internal audit plan is reviewed and approved by the Audit

Committee at the beginning of each year.

In addition to the review of the Company’s internal control activities, Audit and Supervision Department is also

responsible for providing recommendations to the Board on the continuing development of other aspects of the

Company’s internal control framework, including the risk management process, information and communication

system and management monitoring process.

Internal Control ReviewThe Board assesses the effectiveness of the overall system of internal control by considering reviews performed

by the Audit Committee, the management, as well as both internal and external auditors with the understanding

that such system is an ongoing process to identify, evaluate and manage significant risks faced by the Group.

The internal control system of the Group has been in place and was functioning effectively for the year under

review and the process is regularly reviewed.

Whistle-blowing PolicyA whistle-blowing policy was set up by the Company to ensure inappropriate business practices and behaviors

are properly reported and handled. The policy includes the set up of an electronic reporting mailbox. The Audit

Committee and the Managing Director have full access to this mailbox. Follow up review will be performed by the

Audit and Supervision Department on the request of the Audit Committee or the Managing Director. Procedures

and controls are in place to ensure the informant’s identity is kept confidential.

Corporate Social ResponsibilityThe Company values stakeholders’ expectations and concerns, and actively communicates with stakeholders.

In the Company’s 2014 Corporate Social Responsibility Report, we have prepared a summary on our works

in accordance with the ten principles of the United Nations Global Compact, the Global Reporting Initiative’s

Sustainability Reporting Guidelines and the Environmental, Social and Governance Reporting Guide contained

in Appendix 27 to the Listing Rules. Electronic copy of the 2014 Corporate Social Responsibility Report can be

accessed and downloaded from the Company’s website.



Shareholders’ RightsThe Company is committed in engaging constructive communication with its shareholders through a variety of

channels, including through its corporate communications, website, general meetings and investor relations

activities. Shareholders who wish to put enquiries to the Board may send communications to: The Board of

Directors c/o Company Secretary, by post to the registered office of the Company. All communications will be

forwarded to the Board or the individual directors on a regular basis.

Every shareholder has a right to make their views known through voting at a general meeting. The annual

general meeting (the “AGM”) will be held on 3 June 2015. The AGM provides shareholders the opportunity to

communicate with the Board on a wide range of issues relating to the affairs of the Company. Shareholders

who wish to attend and vote may request to be entered into the register of members by its closure for the

AGM. A corporate shareholder may participate by its authorised representative. Subject to applicable laws and

regulations, qualified shareholders may exercise their rights to request circulation of resolution for the AGM.

Shareholders holding at least 2.5% of the total voting rights of all shareholders, or at least 50 shareholders, who

have a right to vote on the resolution at the AGM, may submit a written request to the Company. The circulation

request must identify the resolution, accompanied by a statement of not more than 1,000 words with respect to

the matter mentioned in the proposed resolution, and must be authentication by the requisitionists and sent to

the Company’s registered office in hard copy for the attention of the company secretary (which must be received

by the Company at least 7 days before the relevant meeting). If the requisition is to propose nomination of a

person other than a director of the Company for election as a director at the AGM, that person’s consent to be

elected and biographical details as required by Rule 13.51(2) of the Listing Rules should also be provided. Upon

verification that the requisition is proper and in order, the company secretary will propose the Board to include

the resolution on the agenda for the AGM.

Only persons with proper authority have the right to requisition for and convene a general meeting. According to

applicable laws and regulations, shareholders holding at least 5% of the total voting rights of all the shareholders

having a right t

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